Management Accounting – Case Study
1. Is Davis’s general approach to calculating the opportunity cost in terms of the physical units involved correct? Explain.
2. Assuming productive capacity cannot be increased for either machine in
December, how many PVRs would WCE have to forgo selling to existing customers to fill the special order from Jay Limited?
3. Calculate the opportunity cost of accepting the special order.
4. Calculate the net effect on profits of accepting the special order.
5. Now assume that WCE is operating at 75% of capacity in December. What is the minimum price WCE should be willing to accept on the special order?
6. What are some qualitative issues that should be considered when accepting special orders such as that proposed by Jay Limited?
